U.S. Employment and Labor Force Analysis

December 12th, 2016

The unemployment rate is consistently a discussion topic for the ARM industry since it is driven by unemployment metrics and the current state of the economy. The official unemployment (U3) rate is the most discussed economic metric, and the most recent Bureau of Labor Statistics report revealed a dramatic decrease to about 4.6 percent – the lowest it has been since August 2007. With over 180,000 jobs created monthly, on average, this is enough to keep the unemployment rate at its current level. However, examining the U3 without mentioning the total unemployment (U6) or labor force participation rate – as both provide substantive context to the overall employment picture – would be like looking at the economy with blinders on.

unemployment

The U6 includes part-time employees and marginally attached workers as part of the equation, so it provides a wider spectrum to analyze employment. Both employment measures fell in November 2016, implying that more of the employed individuals are full-time, not part-time, and there is a lower percentage of persons actively seeking employment. However, despite the U3 rate reaching pre-recession lows last month, the U6 remains elevated suggesting a larger percentage of today’s employed individuals working part-time desire full-time employment, compared to before the Great Recession. As it currently stands, the massive amount of part-time employees implies weakness and limited financial flexibility throughout the economy, which in turn limits the ARM industry’s growth potential since these individuals are less capable of taking on debt. Therefore, the ARM industry should monitor the U6 because if it approaches pre-recession levels, then, presumably, a higher percentage of employed individuals are working full-time, allowing for greater borrowing and debt repayment.

Additionally, the labor force participation rate remains at its historically low levels, amounting to just 62.7 percent in November 2016. This is worrisome as it is well below pre-recession levels. If fewer people are actively seeking employment – which skews the unemployment rate – then the economy is not nearly as strong as one might believe. That said, the labor force participation rate is a little higher than November 2015’s low of 62.4 percent so, hopefully, it will rise in 2017 and into the future since there is a variance of roughly 11 million participants between now and prior to the Great Recession. An increase of this magnitude would add over $500 billion to the U.S. economy under current employment measures and wage characteristics.

As it relates to the ARM industry, unemployment rates have contrasting effects on the economy – it is rarely all good or bad. The following chart broadly states the various effects that high and low unemployment rates have on the economy, many of which affect the ARM industry:

tyhjtj

Given the current state of employment metrics, our analysis focuses on some of the effects associated with low unemployment – U3 and U6 – and the corresponding actions of the Federal Reserve Bank (Fed).

Consumer spending: Since the U3 and U6 rates are relatively low, more employed people are likely generating income. Despite being better-off financially, consumers will probably spend outside of their means leading to increased borrowing. Basically, in the short-run, consumers will be better able to repay their existing debts, while they accumulate new debts into the future – some which would become seriously delinquent. This future bad debt will then be outsourced to ARM companies to collect, increasing the ARM industry’s revenue potential.

Higher interest rates: As a result of an increase in monetary circulation and consumers spending – signifying a healthier economy – the Fed tends to increase interest rates. With the impending Fed meeting from December 14th – 15th, an interest rates rise will likely take place. Although a rate increase appeared to be a done deal in October, the combination of record-high Dow Jones and S&P 500 indexes, and the release of even lower unemployment rate data further substantiates an interest rate hike. Higher interest rates may lead to greater leveraging of debt, which increases the potential for delinquencies and benefits the ARM industry. If unemployment rates stagger upwards, this could be a sign that the economy was artificially strong and increased delinquencies on various interest payments will follow.

In all, the November 2016 employment data release provided much-needed optimism for the economy. While it was not perfect – as the labor force participation rate indicates – many analysts and economists believe the U.S. economy has finally, more or less, recovered from the Great Recession and that we have reached “full employment”. With an eye towards 2017, hopefully, more part-time jobs translate into full-time opportunities and those not participating rejoin the labor force, which would lead to more consumer spending and a healthier economy.

Comments are closed.

LATEST BLOGS

What Happens When a Whale Gets Swallowed?: The Potential Sale of Tenet Healthcare Could Significantly Impact U.S. ARM Companies

September 21, 2017

One of the largest players, Tenet Healthcare, announced last week that it is exploring alternatives, including a potential sale. What impact will a transaction involving one of the largest for-profit hospital systems have on the ARM industry? Let's take a look.....

» see this post    » all posts


The Accounts Receivable Management Industry Deserves Greater Support

September 19, 2017

According to numerous studies by universities and government agencies, the accounts receivable management industry is critically important to the success of the U.S. credit economy the largest in the world. However, the ARM industry, unlike many other industries, does not receive the most favorable endorsements from regulators or the media, despite its importance to the U.S. economy.....

» see this post    » all posts


The Economy's Effect on the ARM Industry: The KG Prime Index

September 13, 2017

Fluctuations in the U.S. economy can significantly affect the performance of the ARM industry. Although numerous indicators interact with the industry's many segments, certain variables are far more impactful than others. Taking our analysis of the aforementioned economic variables and their interaction with the ARM Industry a step further, Kaulkin Ginsberg's market research team developed The KG Index with the goal of examining the effects of these economic variables on the ARM industry relative to a base period of Q4 2007. ....

» see this post    » all posts


RECENT ANNOUNCEMENTS

Kaulkin Ginsberg Company to Release Exclusive and Comprehensive Index

September 13, 2017

Kaulkin Ginsberg Company will release an exclusive and comprehensive index detailing the economy's effect on the ARM industry. ....

» see more




The Kaulkin Ginsberg Fall 2017 Fellowship Semester Begins

September 12, 2017

Kaulkin Ginsberg Company, in conjunction with the University of Maryland, College Park's Department of Economics, began its fall 2017 fellowship semester earlier this month for the fourth year.....

» see more




Kaulkin Ginsberg Announces the Acquisition of Remit Corporation by Eastern Revenue

August 17, 2017

Kaulkin Ginsberg Company announced today the acquisition of Remit Corporation, a well-established regional collection agency founded by Harry Strausser III, and based in Bloomsburg, Pennsylvania, by Eastern Revenue, Inc.....

» see more